boAt Founders Exit Before IPO; A Red Flag for Investors?

The popular consumer electronics brand, boAt (Imagine Marketing Ltd.) has hit rough waters. Just weeks before its anticipated ₹1,500 cr IPO co-founders Aman Gupta and Sameer Mehta have abruptly stepped down from their executive roles. This information is officially stated in boAt’s DRHP (Draft Red Herring Prospectus). It says that both founders had resigned from their operational positions of Chief Marketing Officer and Chief Executive Officer, respectively, just 29 days before filing the prospectus.

They have transitioned to non-executive board roles. Mehta as an Executive Director and Gupta as a Non-Executive Director would be notably taking zero salary or sitting fees. This is in contrast to FY2025, where each reportedly drew an annual salary of ₹2.5 cr. boAt has positioned this as a step towards professionalisation. However, appointing Gaurav Nayyar as the new CEO and the transition timing has raised serious questions.

The IPO is structured largely as an OFS (Offer For Sale) and existing shareholders are cashing out. Here, there is an important question for investors. Is this a strategic transition, or are the captains abandoning the ship right before it sails into public markets?

Why Did the Founders Step Down Now?

Aman Gupta has especially been the face of boAt as a brand. His resignation has sparked an intense debate. Market commentators have indicated that the timing is crucial and concerning. Founders stepping-down just 29 days before filing is perceived as a calculated move.

This move is coinciding with the IPO's structure and heavily favouring an existing shareholder exit. Out of the ₹1,500 cr issue, ₹1,000 cr is an OFS. Meaning, the money would go directly to selling shareholders (like Gupta and Mehta), not the company. Only ₹500 cr is a fresh issue for company growth.

So, could this be an "exit strategy?" And, why should insiders step back right before listing? This is further complicated by the fact that the new CEO has stepped-in with no public track record at the company. The crucial question for the investors is: who exactly are they betting on?

Is There a Crisis of Culture and Talent?

The DRHP has revealed a deeper crisis of a mass exodus of employees. The company's full-time attrition rate has skyrocketed to 34.18% in FY2025. This is up from 27.09% two years prior. Meaning, one in every three employees left the company last year.

What makes this particularly alarming is that it happened despite boAt having a large ESOP (Employee Stock Option Plan). ESOPs usually act as "golden handcuffs." They can help retain talent by promising future wealth. The fact that employees are leaving in huge numbers can suggest they either are dis-satisfied despite paper wealth or have no faith in the company's future stock value.

This revolving door of talent can:

• Cripple execution
• Disrupt projects
• Erode the very culture that built the brand.

boAt is a company pitching its IPO on brand strength and future growth. Therefore, a broken internal culture can be a fundamental weakness that no amount of marketing can hide.

What About the Financial "Red Flags"?

boAt has posted a net profit of over ₹60 cr in FY25. This is a turnaround from an ₹80 cr loss in the previous year. However, the quality of its financials has been questioned by its own auditors. The DRHP's "Risk Factors" section also has explicit and troubling admissions, with the auditors flagging multiple governance and accounting lapses in the company, signalling weak internal controls.

• Asset-Liability Mismatch - Funds that were raised on a short-term basis were used for long-term purposes. Analysts call it a classic recipe for a liquidity crunch.
  
• Account Discrepancies - The quarterly statements that were filed with banks did not agree with the company's own books of account. This had happened for three consecutive years.
  
• Excessive Pay - The directors' remuneration in FY2023 had exceeded the legal limits under the Companies Act. This had called-for a shareholder waiver.
  

Furthermore, the consolidated revenue had slightly declined from ₹3,122 cr to ₹3,098 cr in FY25. Also, the wearables segment was once a star performer. But now, it is facing a slump with falling demand and intense competition.

So, it seems like the boAt's IPO narrative is caught between a profitable turnaround story and a series of governance and leadership shocks. With all these events in the background, should the investors buy into a company where the founders have stepped back, employees are leaving, and auditors have raised red flags?

Source

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